The Coronavirus pandemic has left Americans worried about their money. After many individuals have faced unemployment at historic highs due to the virus studies have shown an increase if financial stress. Planning and saving for retirement is difficult enough without the extra burden of COVID-19. But these tips can help individuals of any age save more for retirement, even in a pandemic.
Consolidate Your 401(k) Savings As You Change Jobs: The Employee Benefit Research Institute (EBRI) estimates that most Americans will switch employers at least seven times over the course of a 40-year working life.
Cashing out 401(k) assets after changing jobs can decrease retirement savings over the long term. According to a study conducted by Boston College’s Center for Retirement Research, premature withdrawals reduce your total 401(k) savings by 25% on average.
Keep Your Mailing Address Current in 401(k) Plan Recordkeeper Files: When you strand a 401(k) savings account in a prior employer’s plan after switching jobs, the account may not stay there forever. Under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, defined contribution plan sponsors have the right to automatically roll stranded 401(k) savings accounts from former employees with less than $5,000 out of their plans, and into safe-harbor IRAs. However, these investment vehicles are generally principal-protected products like money market funds, which are the only default investment choices permissible under EGTRRA.
Only Tap Retirement Savings for Liquidity as a Last Resort: The fiscal stimulus signed into law in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, waives penalties for premature 401(k) withdrawals of up to $100,000 made by December 31, 2020. These provisions are intended to help individuals, families, and businesses meet emergency expenses during this challenging time, but as mentioned above, any premature 401(k) withdrawal you make today significantly reduces the income you’ll have down the line in retirement.
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